TCS Three-Week Low Is Due To a Q1 Profit Shortfall
TCS Three-Week Low Is Due To a Q1 Profit Shortfall Tata Consultancy Services (TCS), the most extensive IT services firm in India, had its share price drop by 4.7% on Monday when it reported that it had missed its quarterly profit forecasts by a wide margin. This was because employee-related expenses increased significantly.
On the National Stock Exchange, TCS shares finished the day down 4.70 per cent at 3,112.00 rupees each, while on the BSE, they were down 4.64 per cent and ended the day at 3,113.25 rupees each. On the BSE, it reached its intraday low of Rs 3,105.85; on the NSE, it reached its intraday low of Rs 3,106.00.
According to the statistics provided by the two bourses, a total of 69,74,600 shares of TCS were traded on the NSE on Monday, while a total of 2,02,015 shares were traded on the BSE.
TCS said on Friday, after the market had closed for the day, its net profit for the April-June quarter (Q1) came in at Rs 9,478 crore, representing a year-on-year increase of 5.2%. Because of yearly salary increases and promotions, operating profit margins have dropped to a level not seen in multiple quarters.
During the meeting that took place on Friday, its board of directors also declared an interim dividend of 8 rupees for each equity share.
TCS announced a year-on-year revenue increase of 16.2 per cent, coming in at Rs 52,758 crore for the first quarter. This growth was driven by excellent figures across all key geographies and business categories.
“We are starting the new fiscal year off on a good note, with all-around growth and significant transaction wins across all of our segments,” said the CEO. Pipeline velocity and deal closes continue to be good. Still, we are keeping a watchful eye on the situation because of the macro-level uncertainty, said CEO and MD Rajesh Gopinathan.
He stated that the new organisational structure had adjusted well, bringing the business closer to its customers and making it more agile in a dynamic environment. He said, “Looking ahead, we remain confident in the resiliency of technology spending and the secular tailwinds driving our growth.”
In response to the results of the IT giant for the first quarter, TCS is projected to be one of the primary beneficiaries of the medium-term rise in technology spending, according to a note written by Mitul Shah, Head of Research at Reliance Securities.
We anticipate that TCS will increase its market share due to initiatives to consolidate vendors and monetize captive customers. Nevertheless, a contraction in EBIT margins and a weaker order book would restrict the future earnings growth rate, leading to a downward revision of the valuation multiple.
We have a favourable outlook on TCS’s role as a key beneficiary of the IT upcycle, and we are optimistic about the structural IT story. In light of the stock’s robust revenue growth, increased EBIT margin, and industry-leading return ratios, our outlook on the stock has not changed. At this time, we recommend investing in the store by purchasing it.
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